As troops and firefighters struggled to douse the flames, Victoria state's Country Fire Authority issued a series of alerts warning of possible flare-ups across the southeast state.

Shifting winds threatened to send the deadliest fires in Australian history beyond containment lines hacked out by thousands of firefighters, most of them exhausted volunteers who have been working for days with little rest.

The firestorm has engulfed entire towns and wiped out families, triggering both heartache and anger after police revealed some were set by arsonists.

Victorian Premier John Brumby said the fires would inevitably claim more lives as the crisis continues, and early Tuesday the Australian Associated Press (AAP) quoted police as saying the death toll had risen to 166 from 131.

"There is a huge effort to get them under control (but) tragically we will have more deaths later this week," Brumby told public television.

Prime Minister Kevin Rudd said any arsonists involved were guilty of "mass murder."

"This is of a level of horror that few of us anticipated," he said, choking with emotion as he recounted the messages of support from around the world.

Britain's Queen Elizabeth sent her condolences and Australia's parliament suspended its normal business to mark what Deputy Prime Minister Julia Gillard called "one of the darkest days in Australia's peacetime history."

Tales of tragedy, fear and narrow escapes transfixed the nation, as images of the towering flames dominated television and newspapers.

Huddled under a damp blanket in a puddle in a creek, as the conflagration roared overhead "like a jet engine," Sonja Parkinson was convinced she and her infant son Sam would die.

Instead, their flimsy shelter saved them from the inferno that claimed at least 32 lives in their town of Kinglake.

"The two front rooms were ablaze. I couldn't see. It was black," she told The Australian newspaper.

"We went down to the creek and we hid. This little one was so brave under the blanket."

Dozens of fires were still burning in Victoria state, where all the deaths occurred, with the main threat late Monday in the east.

The fires have so far swept through 3,000 square kilometres (1,200 square miles), leaving smouldering ruins, some now surrounded by police tape as authorities probe whether arsonists were to blame.

Police described the entire town of Marysville, one of the worst-hit areas, as a crime scene.

In nearby Kinglake, the charred bodies of four children were found huddled with that of an adult, believed to be a parent.

Police identified the four as children only from the size of their skulls, The Australian newspaper reported.

With Kinglake flattened, residents further east were nervously waiting to see if they would suffer the same fate as conditions worsened late Monday.

"People are nervous, we are at the mercy of the weather," said businessman James Lacey from the town of Yackandandah.

Victoria's Brumby launched a review of the way authorities handle bushfires, admitting that existing advice telling people to either leave their home early or stay on and fight the flames had proved flawed.

"There were many people who had done all of the preparations, had the best fire plans in the world and tragically it didn't save them," the state premier told commercial radio.

Thousands of animals -- kangaroos and koalas as well as cattle and sheep -- are also believed to have perished.

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